By Nicholas Stretch, Sue El Hachmi and Anika Chandra
Many employee share schemes currently provide for acts of age-related discrimination, including automatically preventing employees who are close to retirement from receiving new awards and/or favouring retiring employees over other leavers by allowing them to receive the full number of shares under their award.
However, these will normally be unlawful after 1 October 2006 under the Employment Equality (Age) Regulations 2006 (the "Regulations") and changes will have to be made to scheme rules to comply with the Regulations.
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Many employee share schemes currently provide for acts of age-related discrimination, including automatically preventing employees who are close to retirement from receiving new awards and/or favouring retiring employees over other leavers by allowing them to receive the full number of shares under their award.
However, these will normally be unlawful after 1 October 2006 under the Employment Equality (Age) Regulations 2006 (the "Regulations") and changes will have to be made to scheme rules to comply with the Regulations.
What should employers be doing now?
Companies need to consider the compliance of their employee share schemes after 1 October 2006 with the Regulations in just the same way as any other employer-provided benefits.
Companies should be reviewing their scheme rules and award criteria for proposed awards and checking that these will either comply with the Regulations or any non-compliance can be objectively justified. The attached article sets out relevant considerations and some recommended changes to executive (i.e. discretionary) share scheme rules.
Particular points to note for share schemes
The summary position for age discrimination in the context of employee share schemes is that age discrimination will be unlawful unless:
- the discrimination occurred before 1 October 2006; or
- the discrimination is required to comply with specific legislation (in this case, particularly tax legislation for all-employee share schemes, e.g. Sharesave and SIP); or
- the discrimination is objectively justifiable.
Pre-1 October 2006 awards
- Awards made before 1 October 2006 will not normally give employees grounds for action.
- However, companies should be careful when exercising after 1 October 2006 any degree of discretion open to them with pre-1 October 2006 awards. This will not automatically be outside of the scope of the Regulations by virtue of the award being made before 1 October 2006.
Permitted under specific legislation
- Any age-related rules in Revenue approved share schemes imposed by tax legislation do not contravene the Regulations. Accordingly, the age-related provisions in Sharesave and Share Incentive Plans should not be challengeable.
- Service-related benefits are permitted under the Regulations provided those do not take into account a period of more than 5 years. However, since 5 years is the maximum period permitted under Revenue-approved schemes in any event, and executive schemes rarely have a service period before the award is made, this is unlikely to be a problem in practice.
Objectively justifiable
- In all other cases, age-related discrimination will have to be objectively justifiable. While recognising loyalty and experience and motivating employees are likely to be objective grounds, there is always uncertainty and employers have the burden of proof in justifying what could be discrimination.
Action to be taken
- Some small changes to executive scheme rules will be required before 1 October 2006 to ensure that their provisions in this area are normally "objectively justifiable" going forward. Scheme rules can normally be amended by Board resolution, and shareholder approval will not usually need to be obtained.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 24/05/2006.
